Medexus Pharmaceuticals Inc

TSX:MDP

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen, and welcome to your Medexus Pharmaceuticals First Quarter 2021 Earnings Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to David Waldman, Investor Relations. Sir, the floor is yours.

[David K. Waldman]

Thank you, Christie. Good morning, everyone, and welcome to Medexus Pharmaceuticals' first quarter conference call. On the call with us this morning are Ken d'Entremont, Chief Executive Officer; and Roland Boivin, Chief Financial Officer. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at [phone]. I'd like to remind everyone that the discussion during this call will include certain forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. Medexus disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law. In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to adjusted EBITDA, which do not have any standardized meaning under IFRS and, therefore, may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which, along with the financial statements, are available on the company's corporate website at www.medexus.com and the company's corporate filings on SEDAR at www.sedar.com. I'd now like to turn the call over to Ken d'Entremont. Please go ahead, Ken.

[Kenneth d'Entremont, CEO & Director]

Thank you, David, and thanks to everyone for joining us on the call today. We continue to make exceptional progress as an organization, both operationally and financially, all of which we believe positioned us extremely well going forward. First, we generated strong organic growth across each of our key product lines, including our recently acquired U.S.-based commercial hematology asset, IXINITY. As a result, we achieved record revenue of $27.5 million for the 3 months ended June 30, 2020, compared to $16.1 million for the same period last year. In addition to year-over-year growth, we also achieved sequential growth over the quarter ended March 31, 2020, which also included contributions from IXINITY. We believe that we have built a highly scalable commercial infrastructure in both the U.S. and Canada as we've added new product lines and increased existing product lines with only minor increases in our SG&A. In fact, selling and administrative expenses as a percent of revenue decreased to 41% from 65% for the same period last year. As a result, we achieved adjusted EBITDA of $5 million compared to $500,000 for the same period last year, and we achieved cash flow from operations of $4.1 million compared to cash used by operations of $300,000 for the same period last year. Not only did our revenue increased sequentially, as mentioned earlier, but we also saw a sequential increase in our adjusted EBITDA versus the quarter ended March 31, 2020. We also continued to actively evaluate additional products and potential accretive acquisitions that would allow us to further leverage our existing infrastructure in the United States and Canada. Turning in more detail to our product portfolio. We continue to see strong demand for each of our core products, despite the impact of COVID, as much of our portfolio was used to treat chronic conditions and is distributed through retail pharmacy and not hospitals. This includes our recently acquired hematology product activity. The integration of IXINITY is complete, and we see significant potential for further growth by utilizing our U.S.-based sales force to generate product switches. As we've discussed previously, IXINITY is an intravenous recombinant factor IX therapeutic for use in patients 12 years of age or older with hemophilia B, a hereditary bleeding disorder characterized by a deficiency in clotting factor IX, which is necessary to control bleeding. The hemophilia B market in the United States alone is estimated to be USD 734 million and continues to grow. We're also conducting a pediatric trial for IXINITY, which if successfully completed, would expand the product label to include the pediatric population, which we believe is an attractive untapped market for our product. We experienced a 7% increase in Rasuvo unit sales over the prior year. Rasuvo, a once-weekly subcutaneous single-dose auto-injector of methotrexate is indicated for the treatment of rheumatoid arthritis, psoriasis and juvenile idiopathic arthritis. Rasuvo has gained excellent payer, prescriber and patient acceptance, which has positioned us as an emerging leader in the methotrexate auto-injector. We expect this growth to continue as prescribers adopt the most effective and convenient form of methotrexate for their patient. In Canada, we are experiencing strong revenue growth for both Metoject and Rupall. Due to public reimbursement for Metoject, we are able to access a large group of patients who previously could not get the product. Unit sales increased 75% over the previous year. Metoject is a prefilled syringe of methotrexate, which is indicated for the treatment of rheumatoid arthritis and psoriasis. Metoject is a highly effective and cost-efficient treatment for these debilitating diseases. Rupall has generated solid year-over-year prescription growth. Rupall launched in January 2017 has experienced very strong growth, with unit market demand showing an increase of approximately 48% over the prior year. Rupall continues to be one of the fastest-growing antihistamines in the Canadian prescription market and continues to gain market share. Given the trend of physicians switching patients from generic prescription antihistamines or over-the-counter products, we believe Rupall is positioned to become a leading prescription antihistamine and a total market value at approximately $145 million. In previous quarters, we mentioned we are developing a reformulated rheumatology product that we believe will improve the delivery of this therapy in the treatment of RA and other autoimmune diseases. We have decided to put this project on hold as we reallocate R&D dollars to the pediatric study for IXINITY, which we believe has the potential to deliver a more immediate return on capital. We plan to return to the rheumatology product -- project once a pediatric study nears completion. On December 20, 2019, we filed for the registration of Gliolan with Health Canada. The application is a priority review, which means the file could be approved as soon as this month or early next month. Gliolan is used for guiding maximal surgical reception of high-grade gliomas, malignant brain tumors in adults. Gliolan assists neurosurgeons to better visualize and more completely remove gliomas as -- by causing them to become fluorescent and glow under blue light. In March of 2020, we will inform that the quality business unit at Health -- Ontario Health based on guidance from the Ontario Health Technology Advisory Committee and recommended public funding for Gliolan to the Ministry of Health upon approval of the product by Health Canada. Once Gliolan becomes fully registered, hopefully sometime this quarter, we expect it to rapidly gain much broader distribution in Canada, which represents a sizable underserved market opportunity. In the meantime, feedback from the medical community has been extremely positive, and we will continue to distribute Gliolan via the Special Access Program. In April of 2020, we announced that the pan-Canadian pharmaceutical alliance price negotiations for our triamcinolone hexacetonide injectable suspension, or TH, were complete, and that we expected public reimbursement to roll out in their respective provinces over the coming months. I'm pleased to report that on July 9, we announced TH has been approved for inclusion in the Alberta drug benefit list, the Saskatchewan drug plan, the Newfoundland and Labrador prescription drug program as well as Yukon drug formulary for the treatment of juvenile idiopathic arthritis. TH has also been approved for inclusion on the Ontario drug benefit formulary and the noninsured health benefits -- drug benefit list for its full Canadian-approved indication, which includes approved use in both adults and adolescents. Inclusion of TH on the federal, provincial and territorial formularies improves access to this product for a large proportion of population who need this drug. We are now actively promoting this product for use in JIA as well as other forms of arthritis. TH competes in an inter-articular steroid market valued at $33 million in Canada. Along with all our operational progress during the quarter, we continued to maintain strict financial discipline with $10.2 million of cash and cash equivalents at the end of fiscal year 2020 as well as $14.5 million of available liquidity as of June 30, 2020. As a result of hard work by our talented team of people, we believe we have built a solid platform with financial flexibility to execute on our 3 pillars of growth. First, continue to generate strong organic growth from existing portfolio; second, license and acquire additional products where we can leverage our North American commercial infrastructure; and third, the development of new products within our core therapeutic areas. On one final note, on August 4, 2020, I am pleased to report we commenced trading on OTCQX, which reflects our rapid growth and increased focus in the U.S. It is important to note that the OTCQX is not our end goal. We are actively reviewing or creating platforms and hope to announce further improvements in the future. In summary, our products have done well, despite the impact of COVID as much of our portfolio is used to treat chronic diseases. Our sales teams have remained productive by finding new ways to connect with clinicians and patients during the ongoing pandemic. As a result, we saw organic growth in all our key product categories. But equally important, we achieved a significant increase in our cash flow as we've begun to leverage our powerful North American commercial infrastructure. Overall, we remain extremely encouraged by the outlook for the business and look forward to providing further updates as developments unfold. I will now turn the call over to Roland, who will discuss the financial results in more detail.

[Roland Boivin, Chief Financial Officer]

Thank you. As Ken mentioned, we continued to generate organic growth despite the COVID-19 pandemic. At the same time, the integration of IXINITY is progressing well, and we are generating very strong cash flow. Turning to our financial results in detail. Total revenue for the first quarter of 2020 increased to $27.5 million compared to $16.1 million for the same period last year. The increase was mainly due to both the acquisition of IXINITY as well as organic growth across all of our key product lines. Gross profit for the first quarter of 2021 increased to $15 million or 54.4% of sales compared to $9.9 million or 61.4% of sales for the same period last year. The lower gross margin for the first quarter of 2021 when compared to last year is due in part to the IXINITY acquisition, which currently has a lower gross margin than our other key products. Research and development expenses for the 3 months ended June 30, 2020, of $900,000 related primarily to the IXINITY pediatric trial, whereas the R&D expenses for the 3 months ended June 30, 2019, of $400,000 related entirely to the reformulating of an existing FDA-approved product for use in the field of rheumatology. And as Ken mentioned earlier, this rheumatology project has temporarily been deprioritized as we plan to return to it as the IXINITY pediatric trial nears completion. Operating income for the 3 months ended June 30, 2020, was $1.6 million compared to an operating loss of $1.1 million for the same period last year. Adjusted EBITDA for the 3-month period ended June 30, 2020, was $5 million compared to $500,000 for the same period last year. Net loss for the 3-month period ended June 30, 2020, was $4.8 million compared to $2.2 million for the same period last year. Important to note that the net loss for the 3-month period that just ended June 30, 2020, included a $3.7 million unrealized loss on the fair value of derivatives. We've also maintained a solid balance sheet with $10.2 million of cash and cash equivalents as of June 30, 2020, and had available liquidity of $14.5 million at the end of the first quarter compared to $7.4 million at March 31, 2020. Additionally, and very importantly, I'm pleased to report that we generated $4.1 million of cash flow from operations during the quarter. Operator, we'll now open the call to questions.

[Operator]

[Operator Instructions] And we'll go with Tania Gonsalves with Canaccord Genuity.

[Tania Rae Gonsalves, Analyst of Healthcare]

Congrats on a very strong quarter. Just a couple of questions for me. I'm wondering if you can give us any insight into how Rasuvo pricing trended quarter-over-quarter.

[Kenneth d'Entremont, CEO & Director]

Thanks, Tanya. Yes, good question. As you well know, in previous quarters, there's been pressure on price on Rasuvo. That has stabilized now. We saw no further consolidation, no further pressure. And we are now looking for opportunities to leverage our strong market position to actually improve pricing. So no real change there through this quarter.

[Tania Rae Gonsalves, Analyst of Healthcare]

Excellent. Okay. And then that would make sense. I'm trying to figure out what percentage of your revenue came from Rasuvo -- of your U.S. revenue, sorry, came from Rasuvo versus IXINITY. I noticed the gross margin is significantly higher than I would have thought it would be. And I know IXINITY comes with a bit of a lower gross margin. Can we -- is it safe to infer then that IXINITY sales were a lower percent of revenue than perhaps Q4, which was very, very strong?

[Kenneth d'Entremont, CEO & Director]

I'll let Roland get into detail on that after one comment. Remember that IXINITY is a -- been a biologic product, the cost of goods is more variable than would be a synthetic product, like [indiscernible]. So there is more availability in cost of goods, but Roland can give you detail on why the difference.

[Roland Boivin, Chief Financial Officer]

Yes. No. Just to make sure, the IXINITY is progressing as planned. IXINITY has the -- has a much more complex supply chain in the sense that we control it versus -- in most other cases, when we're dealing with licenses, it's simply a transfer price, which -- with royalties and things like that, whereas for IXINITY, there's more variability to be expected in that one. So that's the other aspect of the -- of sometimes the shift in gross margin. And yes, it was greater than what you have in your model, Tania. It does not mean that it will always be like this. It's one of those where we are keeping a close eye on it. It's very -- still very recent. And as I said, it's a very complex supply chain or manufacturing process.

[Tania Rae Gonsalves, Analyst of Healthcare]

And then in terms of SG&A, you guys did a really, really good job of controlling costs this quarter. I'm wondering, has face-to-face interaction, travel started resuming now? And what percent of that SG&A was really COVID-19-related costs that we can expect to see come back in fiscal Q2, Q3?

[Kenneth d'Entremont, CEO & Director]

Yes. So I mean, that's still kind of in flux. The Canadian market and the U.S. market are completely different in terms of face-to-face visits. In Canadian market, they are resuming in certain provinces. And just overall, more face-to-face in Canada than in the U.S. In U.S., it's still very much locked down in the physician offices. So very few face-to-face visits. So your question about when to expect it to return. Obviously, yes, a portion of it was reduced travel as reps are in the field. But we do expect that it's going to take some time to return to normal. And the new normal probably will be some kind of a hybrid model with a mix of face-to-face visits and virtual visits. I mean we certainly have found that you can have extremely good reach through the virtual channels as long as you can produce good content, and that has been our focus. And I think that's part of the reason why we get successful. So we do expect to continue to have heavy emphasis on virtual channels even as things return to normal and start to open up more. It's a very effective way to improve your reach. And it was a trend that was ongoing in the industry prior of COVID. COVID just very much accelerated it, and we obviously are taking advantage of the situation.

[Tania Rae Gonsalves, Analyst of Healthcare]

Perfect. And then last one for me. I know there was some commentary in your MD&A just on the potential delay that COVID might cause to your IXINITY pediatric trial. Have you seen any small hints of that yet? Any kind of delays yet? Or is everything moving smoothly with the pediatric trial so far?

[Kenneth d'Entremont, CEO & Director]

Yes. So early on in COVID, most hospitals were completely shut down in most territories. So we saw a delay in enrollment. It has now restarted. We've got many, many countries as options for enrolling, none of which are in the U.S. So enrollment has restarted. And we think we're making good progress there. I think we're at about a 40% enrollment now. So we are making progress, and we will go to the territories that are open and dealing well with COVID; obviously, those territories that can't get back to normal, we're going to stay away from those.

[Tania Rae Gonsalves, Analyst of Healthcare]

Got it. And you said none of the territories are in the U.S. Can you say where you're enrolling patients right now?

[Kenneth d'Entremont, CEO & Director]

They're all over. There are several Western Europe. There's some in Latin America. So we've got many different sites. As you know, this is being a rare disease, it's difficult to recruit patients. So you have to have a broad catchment area in order to enroll enough patients.

[Operator]

[Operator Instructions] And we'll move next to Andre Uddin with Mackie Research Capital.

[Andre Uddin, Managing Director of Healthcare Research]

I just saw a few weeks ago that Piper was trying to divest TiVO's royalties and milestones in IXINITY. And I was just wondering if you can comment on that.

[Kenneth d'Entremont, CEO & Director]

Yes. We're aware of that. They're looking to raise capital to fund the development of their projects. And they see this as an undilutive way to do that. We may well have some interest in those royalties.

[Operator]

And next, we'll go to [ Justin Keywood ], a private investor.

[Unknown Attendee]

Good to see the cash generation in the quarter. Was there anything unusual to account for that? Should we expect near the same levels for next quarter? Or any additional color there would be helpful.

[Kenneth d'Entremont, CEO & Director]

Thanks, [ Justin ]. I'll make a comment and then turn it over to Roland for some of the detail. Obviously, this quarter, we're transitioning from an R&D spend on the previous rheumatology product to IXINITY pediatric trial. And as the pediatric trial ramps up, the spendable ramp up to some degree. So I mean, that will be a change going forward. Roland, can you give any further detail?

[Roland Boivin, Chief Financial Officer]

No, I think that's right. That's a big factor of cash generation. And what I would say is that without getting into specifics of what to expect in the future, which we provided some kind of guidance out there. What I can say, though, is that we're very comfortable with the results that we've had in this quarter here. And that we expect it's according to plan. We expect that we'll be able to keep performing the way we have in terms of the cash. Again, there are items like Ken mentioned, the R&D spend being one of them. So I can't really comment more on that, [ Justin ].

[Unknown Attendee]

Okay. Would it be fair to assume, though, that there would still be cash generation, although maybe a bit difficult to predict how that would come in, but -- or would you anticipate maybe a bit of a burn as some of these strategic investments contribute?

[Roland Boivin, Chief Financial Officer]

Well, again, the -- I'll let you answer, Ken.

[Kenneth d'Entremont, CEO & Director]

Yes, I'll make a comment. If you've got anything to add, please go ahead. Yes, Justin, I mean, obviously, we're making some investments, but we're a commercial operation. Our objective is to generate cash. So that's part of the reason why we deprioritized the rheumatology project. We don't want to become an R&D organization. We want to generate cash. So we expect to do so into the future, may not be to the same degree every quarter. But certainly, we see our revenues continuing to grow, and we don't see additional investments in SG&A. So that will be flat. So as that grows, we think more will drop to the bottom line, we will make some small strategic investments like the IXINITY trial, but we don't have any big commercial spend anticipated in the future. So we think we'll continue to generate cash.

[Unknown Attendee]

Okay. That's good to hear. It seems to be a bit of a turning point there as far as the cash generation. Just on the Canadian segment, I didn't see the breakdown of the products. Are you able to comment on what Rupall contributed in the quarter and on a year-over-year basis?

[Kenneth d'Entremont, CEO & Director]

Roland, can you deal with that?

[Roland Boivin, Chief Financial Officer]

I was just going to say, what we disclosed -- as part of our MD&A, and which ends up in all the other presentations and so on, is the unit growth is the way that we break down our Canadian business. We do not -- we have that as the total business, obviously. And again, the split between Canada and the U.S. is pretty close to what we were expecting, roughly 75%, 25%. So 75% being generated in the U.S. and 25% being generated in Canada. So roughly those amounts. But we don't break it out specifically. We do talk about unit growth and so on in the market with regards to our 2 largest Canadian brands being Rupall and Metoject.

[Operator]

And there appear to be no further questions at this time. So I'll turn it back to management for any closing remarks.

[Kenneth d'Entremont, CEO & Director]

I'd just like to thank everyone for participating in our first quarter 2021 call. We believe we've built an outstanding team and a strong commercial platform. We obviously remain very optimistic about the outlook for the business as we continue to grow overall revenue with aggressive plans to introduce new products through our North American commercial infrastructure. Looking ahead, we are well positioned to continue our organic growth, license new products as we explore opportunistic acquisitions. Based on our expected revenue growth and stable operational expenses, we believe we will generate strong cash flow in the current and future fiscal quarters. We appreciate the strong support from our shareholders and look forward to providing further updates on our progress in the weeks and months ahead. Thank you all very much.

[Operator]

And that does conclude today's webinar. Thank you for attending. You may disconnect your lines at this time, and have a great day.